UTC to Close Mostek, Sell Communications Unit

By Michael SchrageOctober 18, 1985

United Technologies Corp. will close its money-losing Mostek semiconductor subsidiary and sell its telecommunications business, resulting in after-tax loss provisions of $423.7 million, the technology conglomerate announced yesterday.

The loss provisions were offset in part by the sale of another subsidiary, and the company showed a net loss of $45.6 million for the third quarter compared with a profit of $192.7 million ($1.48 a share) for the third quarter of last year. Its 1984 revenue totaled $14 billion.

"Satisfactory results from our core businesses during the first nine months were overshadowed by losses in Mostek and our telecommunications business. The actions we are taking are difficult and unpleasant, but absolutely essential to end the drain on our earnings," said United Technologies Chairman Harry J. Gray.

These moves effectively end United Technologies' efforts to become a major player in the silicon chip and telecommunications markets, efforts that Gray had initiated in an attempt to make his company a major force in electronics.

"This is a painful recognition of reality that the company's efforts in electronics have not worked and that, therefore, the future health of the enterprise would be impaired if they continued investing at past rates," said Wolgang Demisch, an analyst with First Boston. "It's a major setback for the company."

Mostek, which UTC acquired in 1980 for $345 million, was intended to be the company's gateway into the electronics age. Mostek offered a base for UTC to build electronic intelligence into its other products.

Instead, the acquisition coincided with a slump in the semiconductor business from which Mostek was unable to recover in the face of rapidly changing technology and increasing competition from Japanese semiconductor companies.

According to Dataquest, Mostek's revenues for the first half of 1985 dropped nearly 50 percent to $94 million. The company wrote down nearly $214 million in inventory and had slashed its employment rolls from 10,000 to well under 3,000. The company was losing an estimated $200 million a year.

UTC had hired Motorola semiconductor executive James Fiebiger to run Mostek, but he reportedly told UTC management that the company was beyond repair. Fiebeger, who was unavailable for comment, will remain with UTC in a "senior management position," according to a company spokesman.

The company also said it would sell its unprofitable United Technologies Communications group, which it had acquired from General Dynamics Corp. in 1982, as part of its divestment efforts. The move will affect 1,400 people.